Our business on other products which represents 70 percent of our production is highly competitive as well, our reinforcing bars.

We can see no way in which we can increase our wages to 62%1⁄2 cents an hour on Government contracts without putting that increase on all along the line. In our community, we are paying well above the average. Some of our industrial plants in Williamsport are paying 25 and 35 cents an hour.

We are willing to forego directly bidding to the Government on these contracts under the original Walsh-Healey Act, but if we are compelled to maintain these standards on Government work, under this amendment

Senator HILL (interposing). You mean as a subcontractor?

Mr. DALEY. Yes. We will have to definitely forego that. Our plants are hand mills. One man in our plant only produces about 7 tons of steel in a month. You can see from that we have 260 men, and they are only producing 2,100 tons a month. If we have to compete with the larger mills with investments of $15,000,000 on automatic mills, a high percentage of our cost goes to actual wages. would definitely be out of the competition on Government work, which would mean 30 percent of our production taken away from us, and operating only at 50 percent, you can see how important that is going to be to us.

We

Senator HILL. Thirty percent of your business today is on Govern

ment contracts?

Mr. DALEY. Yes.

Senator HILL. As subcontractor?

Mr. DALEY. Yes, sir. Our operations are only 50 percent and have been for a year. I cannot see the solution either way. If you take that production away from us, we are certainly going to be licked, and if we try to compete with the larger mills at the increased costs of $3.65 a ton, we are not going to get any of the business anyway. We are operating at a loss now, we are all marking time. Senator HILL. How large is your town of Williamsport? Mr. DALEY. Fifty-five thousand.

Senator HILL. You speak of this 62%1⁄2 cents. Would you say that is the prevailing wage in Williamsport today?

Mr. DALEY. NO; we are paying above the average, and we have two competitive mills within 30 miles that are paying less than we and we are competing with them on commercial business.

Senator HILL. You are complying with the Fair Labor Standards Act?

Mr. DALEY. Yes, sir.

Senator HILL. Did that affect your business, if I may ask?

Mr. DALEY. It did; we were paying at the rate of 481⁄2 cents but still we were not making any money. Our losses were a little more, but if we can get our production higher than 55 percent paying 48% cents, we have visions of making some money, but if we have to increase our pay roll to 621⁄2 cents we cannot see any light anywhere. And if we take that 30 percent out and not bid on this Government work, we are licked again.

Senator HILL. Your company has no connection at all with any other company or any of these big companies?

Mr. DALEY. Entirely independent. It started as a family affair since 1858, and we have operated continuously ever since.

This Federal work for the last 4 or 5 years has been our bread and butter, and we could not have existed without it. If that is going to be taken away from us, it will destroy us; there is no question about it. Senator HILL. Provided your wages are at the same rate as the big companies, is that right?

Mr. DALEY. That is right. We cannot compete with them with our little hand-made products.

Senator HILL. Is there any big company operating in your locality today?

Mr. DALEY. No; not in the larger mills.

Senator HILL. How near is the nearest of the big mills to you? Mr. DALEY. I would say that Pittsburgh is, 200 miles away. I do not think it is the intent of this amendment to force the small companies out of business, but you see our position.

Senator HILL. Your point is that if this amendment passes and the wage scale is continued as it is today by the Department of Labor, it will put all of the little fellows out of business and the big fellows will get it all?

Mr. DALEY. Sure.

Senator HILL. I get your point. Thank you.

Are there any questions, Senator La Follette?

Senator LA FOLLETTE. No.

Senator HILL. Thank you very much.

STATEMENT OF R. S. SMETHURST, ASSOCIATE COUNSEL, NATIONAL ASSOCIATION OF MANUFACTURERS

Senator HILL. You may proceed, Mr. Smethurst. Give your name and affiliation to the reporter.

Mr. SMETHURST. My name is R. S. Smethurst. I am associate counsel of the National Association of Manufacturers.

Mr. Moore, who appeared a short time ago, outlined the position of this association toward the amendments contained in the Walsh bill, and also our views with respect to the present Walsh-Healey Act. I have no desire to cover the same ground and get into any duplication of what has already been said. Since Senator La Follette was not here, however, perhaps I should say that we take the position that in view of the general wage-and-hour law, there is no longer any necessity for the Walsh-Healey Act. If this committee does not agree with that, we still think that the two statutes should be brought further into line.

I would like for a moment to discuss the text of some of these amendments to make sure exactly what they are intended to accomplish. These amendments can be classified in five different categories; first, to reduce the amount of the contract from $10,000 to $2,000; second, to include subcontractors; third, to change the definition of "supplies" by bringing in services except professional and to include vessels and floating equipment; and fourth, to bring the statute in line with the Fair Labor Standards Act by adopting the child-labor provision and provisions pertaining to deductions from wages.

With those latter two we have no quarrel. They are, in our judgment, in the right direction.

While we think the statute should be repealed, the next best thing would be to make it conform as nearly as possible to the Fair Labor

Standards Act. Before going into that, I would like to discuss this amendment in the Walsh bill pertaining to subcontractors.

In section 7 of the bill, the term is defined to mean—

any person who manufactures or furnishes to or for the principal contractor, whether directly or through any middleman or broker, all or any part of the supplies which are required to be manufactured or furnished by the principal contractor pursuant to the Government contract.

From Mr. Walling's testimony and from some of the other statements which have been made here, it is not entirely clear to me whether that amendment is merely intended to reach this so-called bidpeddling problem or not. I really think it is much broader than that and goes much further. The language "all or any part of the supplies" would seem to include all or any part of the materials which are used by the principal contractor in the fabrication or assembly of the product called for by the contract. If that is the intent or the meaning of the amendment, then it goes much beyond what has been suggested. When you add to that the fact that it would include a subcontractor who furnished any part of those supplies through a middleman or a broker, the scope of it is unlimited. This provision could be construed to apply to any parts or materials which may eventually find their way through the actual channels of distribution into the hands of the principal contractor and anyone who furnished it to him originally would be a subcontractor, even though he had no contractual relation with either the principal contractor or the Government.

Senator HILL. You mean if he does this, if he just went out and bought it like buying a keg of nails in a merchandise store?

Mr. SMETHURST. Yes; there is your middleman. Personally I do not believe it was intended to be that broad, but I think it can be considered that way.

Further, it is provided that the provisions of the act shall apply only to such subcontractors whose contracts exceed a total of $2,000. I think there is considerable ambiguity there for this reason, that it does not specify whether the subcontract shall be a single subcontract of $2,000 or more, or whether the total subcontracts of a particular supplier would equal or exceed $2,000. It may be the combination of a series of smaller contracts that equals $2,000 and brings the whole thing under the act.

Mr. Moore explained the practical problems involved on the part of a manufacturer who may be held responsible for the conduct of various subcontractors. I think the responsibility of the principal contractor would clearly arise under section 2 on page 3 of the bill where it provides that any breach or any violation of any of the representations in any contract shall render the party responsible therefor liable to the United States for the numerous penalties provided further on in that section. The principal contractor is the only party who has direct contractual or legal obligations with the agency entering into the contract and presumably is the party responsible. This language refers to the party legally responsible, and that is the principal contractor.

Senator HILL. What other way could you reach the subcontractor except through the contractor, because as you suggest, the contractor is the only party that the Government knows in the contract, isn't that so?

Mr. SMETHURST. We think that is the difficulty of trying to extend it back through the subcontractors. I do not see how you could do it without putting the burden on the principal contractor. We have just been through a similar problem under the wage-and-hour law. I refer to the responsibility of the manufacturer who assembles a product and ships it in interstate commerce; his liability for a possible violation that may have occurred three or four steps removed from his actual manufacturing process. One of the amendments recently reported by the House Labor Committee particularly was intended to remedy that situation by eliminating that responsibility from the shipper where he had no knowledge that they were produced in violation of the act.

We are getting away from the problem under the wage-and-hour law if that amendment is approved, but reviving it by these amendments to the Walsh-Healey Act.

This amendment including subcontractors we object to for two reasons: First, we think it is undesirable to extend the law as this would extend it until there is some assurance that there is going to be enforcement. I understand the figures given by the Public Contracts Division indicate that during the first 2 years the law was in effect, approximately 12,000 contracts were awarded subject to the standards of the Walsh-Healey Act; that would represent about 5,500 as the average annual number under the act. The Division has examined some 4,600 or 4,700, leaving approximately 8,000 contracts which have not even been inspected.

We have had complaints come in to us from companies which say that they bid in good faith and that they are going to comply with these provisions, but then the contract is awarded to someone that they know is not complying. With 8,000 contracts yet uninspected, the Public Contracts Division is really 2 years behind. If it has inspected at the rate of 4,700 a year-it is about 2 years behind, roughly.

Mr. Walling testified that as far as he could estimate from the figures of the General Accounting Office, these amendments would increase the number to 100,000 a year. That is 20 times the present number subject to the act. I understand they have possibly six new inspectors, which, added to what they already have certainly does not seem to give them enough to police the number of contracts that would be covered or included under the act by these amendments. If that larger number of contracts is to be awarded and performed without any examination or inspection, the situation is just as bad as that which this bill originally purported to correct.

That is one reason why we think this is bad policy to extend the law to include that broader number of contracts in addition to the practical reasons that Mr. Moore pointed out.

Mr. Moore also referred to the conflict between the Walsh-Healey Act and the Fair Labor Standards Act. The reference was in particular to this different method by which the minimum wage was to be ascertained. Under the Fair Labor Standards Act, there has to be some reference to the effect of the minimum wage on competition, some reference to living costs and transportation and that sort of thing. There is no similar reference to the minimum wage under the Walsh-Healey Act. In the Walsh-Healey Act, the rates have been established from 314, which is the lowest, to 67%, which is the highest.

At least half of the minimum wages determined have been above 40 cents an hour; in other words above the top limit that would be reached by the Fair Labor Standards Act. When you go back and look at the report of this committee when the Walsh-Healey Act was reported first in 1935 and again in 1936, it was designed to get at the sweatshop condition, and it just does not seem in accordance with the same original purpose that we are now getting minimum-wage recommendations of 62 or 67%1⁄2 cents an hour when the Fair Labor Standards Act provides that for the first year, at least, 25 cents is the absolute minimum. But the Fair Labor Standards Act is not the only law which conflicts with the Walsh-Healey Act. There are two others which in one way or another cover the same subject matter. One of these has been lying dormant and has just been revived during the past 6 or 8 months. I am referring to the Federal Eight-Hour Law of 1912.

In addition the Bacon-Davis Act, of course, permits establishment of the prevailing wage in the locality where the construction is to be carried on, and the Secretary is given authority to determine that prevailing rate, but that prevailing rate applies to any employee employed on the site by either a contractor or a subscontractor.

Under the 8-hour law of 1912 you have a rigid 8-hour day required with no overtime per day or per week. This applies primarily to any laborer or mechanic employed on a public works or construction project. While the law purports to reach any contract, there is an exception which has been applied to exclude contracts for supplies, and that exemption reads that the contract shall not apply to a contract for supplies whether the articles are usually obtaininble in the open market or manufactured to meet specifications.

Through a series of rulings by the Attorney General and by the Comptroller General over the past several years, that act has been held not to apply to the normal contract for supplies or equipment. Apparently the officials of the Veterans' Administration became quite confused over the serious condition created with several statutes dealing with the same subject, because in October last they submitted the problem to the Comptroller General for a ruling to ascertain whether certain contracts entered into by the administration were covered by this 8-hour law. The opinion of the Comptroller General leaves the matter completely up in the air.

It was followed by a circular letter sent out from the Procurement Division which in effect advised the State procurement officers to include this stipulation whenever there was any doubt, so that right now we do not know to what extent this 8-hour law will apply. If the 8-hour law applies, there is no overtime; if the Walsh-Healey law applies, there is overtime. If neither applies, then the Fair Labor Standards Act applies permitting overtime over 44 hours a week. That situation is one which prompted our recommendation that at least something be done to clarify the situation and that it can be done more simply by providing that the standards contained in the Fair Labor Standards Act, the statutory minimum wage or the minimum wage established by an industry committee, should be the standard to be observed on Government contracts.

I am sorry I did not have any prepared statement, Mr. Chairman, but I would like to supplement what I have said if the record will be kept open for any time at all to receive written statements.